Kilroy 1Q17 Earnings Call Notes

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John Kilroy – Chief Executive Officer

Demand remains healthy in West Coast markets

“Our experience in the first four months of 2017 is at the West Coast markets where we operate, demand remains healthy, the rental rates for top quality properties continue to rise and that a broad range of industries including Technology, Life Science and Entertainment continues to expand in our markets.”

New life science building costs $746 per square foot

“Yes, okay, so let me give you this as simply as I can. The cost went from 485 to 560. That’s a 15.5% increase in cost. The new cost is 746,000 — $746 of square feet because the square footage is 750, so we have a 7.2% increase in square footage, a 15.5% increase in cost. The new cost per square foot is roughly $746 a square foot, that’s a $54 a square foot increase per square foot, but the rents have gone up substantially since our original underwriting, so we believe we still end up at 8% or better. So we ended up with — another comment about that is that if you think about the $746 of square foot for the competed product for a brand-new, state-of-the-art life science. Life Science generally is about $100 a square foot more than the office spaces, but we already embedded into the 485,000 quite a bit of the Life Science ready cost, so the added increment, you can see from what I’ve mentioned.”

Sales of new buildings have been over $1000 a square foot

“In terms of the cost structure, at 746, you can compare that to recent sales here in San Francisco of Class A, newer product. It’s been well north of $1,000 a square foot, $1,100, $1,200 or more. We think we have a pretty great cost structure and well below what other things are trading at. And the last comment I’d make, just for everybody here is that The Exchange has about 700 parking spaces, which is unique.”

You haven’t seen us out there buying stuff at 2, 3, 4%

“you haven’t seen us out there buying stuff at 2% and 3% and 4%, unless there was a real opportunity to move it up through value add and I think that’s probably going to be the way. Value adds can come in different things.”

David Simon

Difficult to build anything in west la

“Yes, sure, I’ll go first. Hi, John. L.A. in general, Westside, as you know, extremely difficult to build and develop and put new projects up. There is a few going on, as you’re aware of, the pen factories, stuff down in Playa. With regard to the transit oriented stuff, related to the Expo line coming up, very important from Santa Monica’s perspective and the other cities that it’s attached to kind of find the community plan areas where that development can happen. So there is a push by that community and the city to build those kind of projects and those transit-oriented markets, John, with the right balance of products, whether its residential, retail or office. But overall, continues to be difficult in L.A. and the general and specifically difficult on the Westside.